Iron Ore-Shanghai rebar hits contract low, demand woes persist

Reuters Staff

4 Min Read

* Steel oversupply in China weighs on prices
* Steel demand may not recover until Q3, early Q4 - trader
* Spot iron ore at one-month low
(Updates rebar price)
By Manolo Serapio Jr
SINGAPORE, July 16 (Reuters) - China steel futures dropped
more than 1 percent to a contract low on Monday as plentiful
supply pressures prices in the world's biggest steel market,
where demand is not likely to recover until later in the year.
The decline in Shanghai rebar prices bucked gains elsewhere
amid worries China's efforts to stimulate its economy -- which
grew at its slowest pace in three years in the second quarter --
may not quickly translate to firm demand.
The most-traded rebar contract for January delivery on the
Shanghai Futures Exchange hit a session trough of 3,882
yuan ($610) per tonne, before closing down 1.3 percent at 3,889
yuan.
Shanghai rebar lost more than 3 percent last week,
the steepest weekly drop since mid-May.
In the spot market, traders said the price of steel billet
in China's key Tangshan area fell by 60 yuan to 3,510 yuan per
tonne, moving closer to this year's low of 3,490 yuan.
"Crude steel production remains near an all-time high, so
oversupply is going to continue for the sake of political
stability and employment, thus steel prices will continue to
fall," said a trader in Hong Kong.
China's average daily crude steel output hit 2.007 million
tonnes in June, the second-highest level on record, as mills
shrugged off slowing economic growth to maximise market share.
China on Friday reported that its economy slowed for a sixth
successive quarter in April-June, with gross domestic product
rising 7.6 percent year on year, matching market expectations.
The in-line growth, which calmed fears about a hard landing
in China and boosted expectations Beijing will employ more
stimulus measures, lifted Asian shares, although some
commodities edged lower after a relief rally on Friday.
"Steel demand may recover but the effect of any policy move
will have a lag time. So probably the earliest will be end Q3 or
early Q4. There was oversupply in Q2, so stocks need to be
cleared," the Hong Kong trader said.
The weakness in steel prices curbed demand for spot iron ore
cargoes, as bids remained scarce.
Price offers for imported iron ore cargoes in China were
steady on Monday. Benchmark iron ore with 62 percent iron
content .IO62-CNI=SI dropped 0.7 percent to $132.80 per tonne
on Friday, the lowest since June 11, based on data from Steel
Index.
"Most mills prefer to get additional iron ore supply from
stockpiles at ports. Many are still hand to mouth so they just
buy what they need and wait what happens next," said an iron ore
trader in Shanghai.
Miners continue to sell cargoes on spot, with top iron ore
producer Vale SA offering 145,562 tonnes of
64.06-percent grade Brazilian iron ore at a tender closing later
on Monday, traders said.
Shanghai rebar futures and iron ore indexes at 0735 GMT
Contract Last Change Pct Change
SHFE REBAR JAN3 3889 -52.00 -1.32
PLATTS 62 PCT INDEX 134 -0.50 -0.37
THE STEEL INDEX 62 PCT INDEX 132.8 -0.90 -0.67
METAL BULLETIN INDEX 134.56 -0.42 -0.31
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3789 Chinese yuan)
(Reporting by Manolo Serapio Jr.; Editing by Chris Lewis)